Vermont’s 14 hospitals have submitted budgets totaling just over $2 billion for the 2012 fiscal year that begins Oct. 1. The proposed budgets amount to a system cost increase of 4.6 percent, but when the total is adjusted by legislatively approved “off ramps,” or exempt budget expenditures, the increase runs to about 2.6 percent, well within the 4 percent cap ordered by the Legislature.
The budget submissions have decreased dramatically for the second consecutive year. The system increase from fiscal 2010 to fiscal 2011, the year now in progress, was close to the 4.5 percent cap ordered by the Legislature.
The current inflation rate for the Vermont hospital system contrasts sharply with the decade from 2000 to 2009 when costs rose at an average of 8 percent to 9 percent per year.
The off ramps enumerated by the Legislature in Act 128, enacted in 2010, included such items as the addition of new electronic medical record and data systems, the purchase of physician practice groups. The exemptions are cited in “narratives” from each of the state’s hospitals on the BISHCA website, along with the following totals:
Budget 2011$1,967,574,030
| Net Patient Revenues | |
|---|---|
| Budget 2012 | $2,058,831,526 |
| Increase | $91,257,496 Percent 4.6 |
| Off Ramps | $40,000,000 estimated Percent with off ramps: 2.6 |
Caveats on the numbers
The available figures are pretty rough. They have been posted by BISHCA, but they have not been scrubbed by Mike Davis and his colleagues. The estimate of the off-ramp totals were derived from the “narratives” provided by each hospital along with detailed budget figures. These were not completely clear. Moreover, the budget exemptions can be accepted or denied by BISHCA Commissioner Steve Kimbell later this summer.
Nonetheless, what is clear from the numbers is that the Shumlin administration has gotten a terrific break in its campaign to shift the Vermont system to a single-payer model. The single most difficult barrier to single payer is cost control, and getting the increase in hospital costs to within a couple of percentage points of the Consumer Price Index, the underlying inflation rate of the overall economy, is an enormous help.
Does that mean the cost problem is solved? Well, no, not at all. The decrease in system costs over the last two years almost certainly resulted from the drop in demand owing to the 2008 recession — which continues, especially in employment — and the dampening effect all the talk about health care reform has had on hospitals.
We experienced the sentinel effect in the last big health care reform push in the mid-1990s. Cost increases moderated significantly in 1994 in anticipation of the “fixed revenue environment” that health maintenance organizations were supposed to impose and then reverted in 1997 to their long-term track, when it became clear that HMOs would do no such thing.
The failure of HMOs to drive costs down to sustainable levels resulted from the failure to shift the financing of health care from fee-for-service to some form of capitation in which health care providers are put at risk for the total costs in the system. If we continue to finance health care through fee-for-service and the economy recovers, then every bit of the 50 years of experience we have testifies that the inflation rate will revert to its historic unsustainable track.
The current circumstances, however, mean that the Shumlin team has a solid year to 18 months to build a new financing model while the health care delivery system can begin to figure out how to adapt to a real world “fixed revenue environment.”
